Target's 'Unprecedented' Results Score Another Point For Brick-And-Mortar Retail In Fight Against Amazon

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Target hit the bull's eye, reporting its best comparable sales and traffic in more than a decade. (Photographer: Mark Kauzlarich/Bloomberg)

Target scored yet another point for brick-and-mortar retailers on Wednesday as it reported its best quarterly comparable sales in 13 years and customer visits to stores picked up to their fastest pace in 10 years, in a performance the company described as “unprecedented.” And don’t just credit the improved U.S. economy.

Like many other retailers, including its larger rival
Walmart, Target reported better-than-expected Q2 profit and sales. Traffic rose 6.4%, the best mark since the Minneapolis-based retailer began reporting the number in 2008. Same-store sales rose 6.5%, outpacing Walmart's figure and the industry average. That included a 4.9 percentage-point contribution from Target's 1,800-plus brick-and-mortar stores in the U.S. Online was also a key contributor: Digital sales jumped 41%, on top of a 32% jump a year earlier.

(To be sure, Walmart, which reported a 40% jump in Q2 online sales, and especially Target are still much smaller in web sales relative to Amazon. For instance, online represented 5.6%, or less than $1 billion of Target's nearly $18 billion in Q2 sales. Amazon's Q2 sales, in comparison, rose 39% to $53 billion, with three-fifths of that from product sales.)

Target shares jumped more than 5% in early trading.

Sure, Target’s gain is driven in part by positive economic indicators that have boosted a broad swath of retailers; Retail Metrics data showed the retailers that had reported results as of Tuesday had delivered on average the industry’s best scorecard in eight years. While expressing caution over the uncertainty around tariffs, the National Retail Federation recently raised its retail sales outlook for the year, citing factors including “a strong job market” and “gains in disposable income” that “have all set the stage for very robust growth” in the consumer-driven U.S. economy.

But Target’s performance, after setbacks including an exit from Canada and grocery sales lagging significantly behind Walmart's, shows that the strategy it started to roll out last year is paying off. The efforts include remodeling stores, cutting prices, opening more smaller-format stores on college campuses and in cities like New York, focusing on fresh and other groceries to help drive traffic and aggressively expanding its private-label assortment that consumers can’t find elsewhere.

For example, Target, already known for its successful private-label apparel and home-furnishings brands like Cat & Jack for kids, recently unveiled its first company-designed electronics and tech accessories line, called Heyday. To lure "Gen Z and young Millennials" — customers the industry covets — Target this month unveiled two apparel lines, Wild Fable and Original Use, just for that demographic.

To better compete against Walmart and Amazon, Target has also been aggressive in funding or acquiring startups like same-day-delivery platform Shipt both to up its game and to gain tech know-how. Less than nine months after it bought Shipt, Target said it's expanded same-day delivery to more than 1,100 stores and expects the service to reach 65% of U.S. households by the upcoming holiday season.

Like Walmart, it's pitching both curbside grocery and in-store pickup services. For in-store pickup, Target said it can process more than 95% of online orders within an hour.

“I think of them every single day,” Cornell said in the CNBC interview, referring to Amazon and Walmart. “We've got to be on top of our game. … We are fighting for those trips, those footsteps and those clicks. … Stores are driving growth again. Brands are connecting. We are building market share in virtually all categories.”

Yes, market share is the key, and retailers look to be willing to sacrifice profit for that, at least for now. With Amazon having attracted 100 million-plus loyal Prime members by undercutting rivals on prices, upping its delivery game and giving them a variety of perks, retailers like Walmart and Target look to be following a similar playbook. Like Walmart, Target saw its gross margin narrow slightly, hurt by “pressure from digital fulfillment costs.”

I have covered the retail industry for well over a decade and written for publications including the Wall Street Journal and Bloomberg News. I have also been ranked as a top industry influencer since 2013. An innate curiosity about how things work and what sets one brand ap...